Tax Dishonesty

I’ve been listening to music via Pandora a lot recently (while writing) and the result is that although I’ve been hearing more than my usual share of political ads. (Since I don’t watch television or listen to commercial radio, I’m normally exempt from these despite living in Ohio.)

One thing that particularly struck me is the rampant dishonesty in regards to tax policy that’s going around, in part due to the both party’s bad habit of making tax breaks look more affordable by enacting them only for short terms, thus necessitating frequent renewal.

The first bone of contention is the “Bush tax cuts”. These tax cuts, which affected taxpayers all across the income spectrum, are estimated to have a “cost” of $3.3 Trillion over ten years (this “cost” is the combination of foregone theoretical tax revenues and the cost of servicing the debt resulting from federal spending not going down by a similar $3.3 Trillion.) Democrats like to refer to the “Bush tax cuts” as “tax cuts for the rich” and to quote the full “cost” of $3.3 Trillion as being the cost of those cuts. What this ignores is that two thirds of that $3.3T actually went to what President Obama refers to as the middle class (families making less than $250,000 per year.) So while it’s true that the “Bush tax cuts” had a “cost” of “over three trillion dollars”, the attacks against this ignore the fact that two thirds of that total is “tax cuts for the middle class” which Democrats support.

Just to make it even more confusing, Democrats like to call extending the Bush tax cuts “massive tax cuts for the rich”, despite the fact it is simply an extension of tax rates which have already been in place for some time. Republicans, on the other hand, like to refer the potential expiration of the tax cuts as a “massive tax increase.” This is accurate, to the extent that people would indeed experience their taxes going up, but it ignores the inconvenient fact that Republicans wrote the tax cut in such a way as to expire (in order to avoid having to make hard budget decisions to ‘pay for’ the tax cut.)

As if one set of expiring tax cuts that everyone talks about in different ways were not confusing enough, there’s also the Obama payroll tax cut: a cut of 2% in the payroll tax that pays for Social Security. This was never meant to be a permanent tax cut, but rather a short term economic stimulus. Social Security has financial problems to begin with, it doesn’t help to make a significant cut in its funding. (And that’s ignoring the fiction that the money you put into Social Security is the money you’re get out again.)

However, even though both parties have signaled that they’re essentially willing to let the temporary payroll tax cut expire at the end of this year (though both parties hope to see this done as part of a broader overhaul of taxes suited to their own priorities) that hasn’t stopped some commentators and advertisers from characterizing Republican support for letting the cut expire as “a tax increase on the middle class”.

6 Responses to Tax Dishonesty

We are running 1.6 trillion deficits annually and we think taking 330 billion out of the private sector is going to improve things? Let me see real cuts in spending, say 1.3+ trillion annually, and I will accept a tax hike. i

The numbers in this article are not what I’ve come across. More middle class people were affected. Each saving small amounts. Fewer rich were affected, yet saved great amounts. This is due to two facts. First, there are more middle class people. Second, most of the money is made by a small number of rich.